New Plays, Saturday, 09/08/2007

New Option Plays

by James Brown

New Calls

None today.

New Puts

Ashland Inc. - ASH - cls: 58.84 change: -1.20 stop: 61.01

Company Description:
Ashland Inc., a diversified, global chemical company, provides quality products,
services and solutions to customers in more than 100 countries. (source: company
press release or website)

Why We Like It:
The oversold bounce from ASH's August lows has been struggling near the $60.50
region for the last two weeks. Now the technical indicators are starting to roll
over into new bearish signals and Friday's decline saw ASH breakdown under its
10-dma. We are suggesting new put positions now. More conservative traders may
want to wait for a drop under $58.00 before opening new bearish positions. We
have two targets. Our first target is the $55.15-55.00 range. Our second target
is the $52.65-52.50
range.

Company Description:
The FTSE/Xinhau China 25 iShares index is an Exchange Traded Fund (ETF) designed
to track the Chinese stock market.

Why We Like It:
If the market is worried about the U.S. economy falling into recession and how
the U.S. consumer might pull back their spending habits then the Chinese market
could be facing a big correction soon. The iShares for the Chinese market (FXI)
already look overbought from their August rebound. We're suggesting put
positions now although readers do have a couple of choices. You could wait to
see if the FXI bounces and then produces a failed rally under $150 as a
potential entry point or
you could wait for a drop under $145.00 as a new entry
point. Our target is the $135.50-135.00. More aggressive traders may want to aim
lower. We may start looking for a bullish entry point near $130. Be aware that
the Chinese markets and the FXI have been very volatile this year so readers
should consider this a more aggressive play.

Suggested Options:
We are suggesting the October strikes. September options are available but they
only have two weeks left. Options are available in $1.00 strikes so feel free to
pick one you like.

Company Description:
Headquartered in New York City, L-3 Communications employs over 63,000 people
worldwide and is a prime system contractor in aircraft modernization and
maintenance, C3ISR (Command, Control, Communications, Intelligence, Surveillance
and Reconnaissance) systems and government services. L-3 is also a leading
provider of high technology products, systems and subsystems. The company
reported 2006 sales of $12.5 billion. (source: company press release or website)

Why We Like It:
LLL has developed some bearish symptoms. Shares have a bearish pattern of lower
highs and the technical indicators are rolling over. We suspect that if the
markets continue lower then LLL could retest the August lows. We're suggesting a
trigger to buy puts at $95.90, which is under short-term support near $96.00.
We're going to try and limit our risk with a tight stop at $98.55. More
aggressive traders will want to use a wider stop (maybe above $100). If
triggered at $95.90 our target
is the $90.75-90.00 range but we may need to
adjust that as the 200-dma continues to rise.

Suggested Options:
We are suggesting the October puts. Our suggested trigger to open positions is
at $95.90.

Company Description:
Whirlpool Corporation is the world's leading manufacturer and marketer of major
home appliances, with 2006 annual sales of approximately $18 billion, more than
73,000 employees, and more than 70 manufacturing and technology research centers
around the world. (source: company press release or website)

Why We Like It:
If the economy is headed into a recession then WHR could be in for another leg
down. The stock's recent bounce attempt is rolling over and shares are
developing a pattern of lower highs. Friday's move pushed shares to a new
two-week low and helped the technical indicators roll over into new sell signal.
We are suggesting put positions now but readers could wait and see if WHR gets a
bounce and failed rally near $95 early next week. We have two targets. Our first
target is the 87.75-87.50
range. Our second target is the $85.00-84.00 range.

New Strangles

Bear Stearns - BSC - cls: 105.37 chg: -2.30 stop: n/a

Company Description:
Founded in 1923, The Bear Stearns Companies Inc. is a leading financial services
firm serving governments, corporations, institutions and individuals worldwide.
The Company's core business lines include institutional equities, fixed income,
investment banking, global clearing services, asset management, and private
client services. Headquartered in New York City, the company has approximately
15,000 employees worldwide. (source: company press release or website)

Why We Like It:
There could be a lot of apprehension over BSC's upcoming earnings report. Will
they disclose more exposure to the subprime meltdown? Are there any more
hedgefunds in trouble? Whatever they announce the news could produce some big
moves in the stock price. That's why we're suggesting a strangle. We're going to
play the September strikes even though they expire in two weeks. Some readers
might want to adjust this strategy and play the October strikes. We're
suggesting readers try and
open positions in the $106.50-103.50 range. BSC is
due to report earnings on Thursday morning before the market opens. Considering
the price of the options and our time frame (two weeks) this should be
considered a more aggressive play. One idea to reduce the amount of time premium
erosion we will suffer would be to wait until Wednesday to open positions.

FYI: We will probably add a strangle on LEH, which also reports on Thursday.

Suggested Options:
A strangle requires buying both an out-of-the-money call and an out-of-the-money
put. We're suggesting the September strikes below. Our estimated cost is $4.40.
We want to sell if either option hits $7.85.